Financial Portal

What does the future hold for public sector contractors?

Tax has become something of a thorny issue in austerity Britain.

First it was Jimmy Carr who was pilloried for reducing his tax liabilities through the Jersey-based K2 scheme and it is now it is the BBC in the firing line after details emerged of some of its highest earners being paid via limited companies, therefore reducing the amount of tax they have to pay.

A subsequent investigation found that more than 2,000 contractors in the public sector are being paid via such vehicles, most notably Ed Lester, head of the Student Loans Company, who reportedly saves £40,000 a year in tax on his £160,000 a year salary.

However, the landscape could be set to change dramatically after leaked documents obtained by the Professional Contractors Group showed a series of measures designed to reduce such payment schemes.

Internal memos sent between the Treasury and the Department for Innovation and Skills set out some major changes, the most notable of which is a plan to pay civil service contractors earning more than £220 a day or on contracts longer than six months as permanent employees.

These proposals have provoked strong reactions from those in the contracting industry, with the general consensus being that they could prove disastrous in the long term.

What has the PCG’s reaction been to the proposals?

The PCG has described the proposals as ‘draconian’ and claims they will ultimately eliminate freelancers from the public sector.
Bodies such as the NHS and Ministry of Defence will be unable to access resources such as IT contractors and healthcare professionals, as thousands of experts employed on short-term contract work will no longer be an option.

Managing director of the PCG John Brazier said that the measures go too far and will impact those who contract legitimately.
“It is vitally important the government does not undermine the UK’s vibrant workforce. The phrase ‘throwing the baby out with the bathwater’ comes to mind when you read these proposals,” he stated.

However, the PCG is not prepared to lie down and accept the move.
“I do not believe the government fully understands the consequences of these measures. PCG will do its best to highlight these issues to ministers and MPs. They will also work tirelessly to protect legitimate freelance businesses in the private sector,” Mr Brazier added.

What can you do if the measures will affect you?

The PCG has set up a dedicated email address for contractors affected by the Review of the Tax Arrangements of Public Sector Appointees review by chief secretary to the Treasury, Danny Alexander.

It is calling on contractors and freelancers who have been asked to provide assurances on their tax obligations to get in touch so it can put together arguments against the proposed moves and inform policy going forward.

Another course of action you could take is to speak to an accountancy services provider about what options you have going forward.

They will be able to go into greater detail on the proposed measures and outline what steps you can take.
Whether the PCG’s efforts to make the government change course will be successful remains to be seen.

However, according to its Exploring the UK Freelance Workforce 2011 report, there are many incentives for public sector bodies to employ freelance and contract workers, so it may not be a lost cause just yet.